If you’re like some people, when you hear the mortgage term 5/1 ARM you might say something like, “Ahhhh! Numbers and an acronym—nooooo!!”
Okay, maybe that’s a bit dramatic, but I think it’s fair to say that a 5/1 ARM doesn’t appear to be the friendliest of terms. And that’s really too bad because he’s actually a nice, straightforward guy.
So what is it?
Adjustable-rate mortgages (ARMs) are just that—mortgages with interest rates that adjust depending on market movement. Meaning that if rates go up, your monthly payment will increase, and if they go down, your monthly payment will decrease.
The corresponding numbers tell you how often the rate will change. With a 5/1 ARM, the 5 means that the rate will stay fixed for the first 5 years, and the 1 tells you that it’s subject to change every 1 year after the initial 5.
Don’t wait too long to take advantage of today’s low rate environment. Contact us today to see if we can save you money on your home payments.
The good
One of the best things about 5/1 ARMs is that they usually have significantly lower interest rates than fixed-rate mortgages. For example, our current rate for a 5/1 ARM is 2.375%, while our 30-year fixed rate is at 3.750%. Not only does the lower rate save you money on your monthly payment, but it also gives you the opportunity to take out a larger loan.
* Rates accurate as of 9/23/15. See below for assumptions.
Of course, they do have the potential to adjust to higher levels, whereas fixed-rates stay at the same level for the life of the loan. However, there are ways to take advantage of the low rate without the risk of a rate hike, such as:
You plan to move within 5 years, therefore the potential rate increase wouldn’t apply to you
You think your income will have risen to a level where a rate increase would be insignificant
You want a lower initial monthly payment than is typically offered by fixed-rate mortgages
You plan on refinancing out of the ARM before the rate gets adjusted to a higher level (can be a risky option because you can never be certain what rates will be like when you want to refinance)
You have a crystal ball and it says interest rates will go down in the future
The bad
It’s not always possible to work the system like the above scenarios. And sometimes the rate environment trumps even the cleverest of schemes. So when you’re evaluating your own situation, it’s almost certainly a bad idea to get a 5/1 ARM if:
Rates are rising
You do not expect your income to grow substantially
see more: https://www.totalmortgage.com/blog/adjustable-rate-mortgages/what-is-a-51-arm/29866
Thursday, September 24, 2015
Wednesday, September 16, 2015
'Underwater' residential mortgages in Winston-Salem MSA decline in 2Q
The default rate for first mortgages increased four basis points in August to reach 0.84% of all mortgages in the U.S. - up slightly from July, according to the S&P/Experian Consumer Credit Default index, a comprehensive measure of changes in consumer credit defaults.
Meanwhile, the default rate for auto loans increased four basis points to reach 0.90%, and the default rate for credit cards saw a slight decrease to reach 2.71%, down eight basis points from the previous month, according to the index.
The composite rate in August was 0.96%, up four basis points from July.
The report notes that despite weak wage growth, consumer credit default rates are currently close to pre-financial crisis levels.
"Two economic areas showing strength are auto sales and housing," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. "Car and light truck sales saw recent gains reaching an annual rate of about 17.5 million units as sales of new homes and housing starts picked up."
Blitzer adds that the growth in credit is "largely due to loosening of credit standards, indicating banks are willing to bear increased risk by approving more subprime consumers." He warns, however, that looser credit could result in higher default rates in the months to come.
Four of the five major cities saw their default rates increase in August, according to the report. New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71%. Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month. Miami reported a default rate of 1.46%, up one basis point for the month.
Los Angeles was down 13 basis points to 0.76% - the only city to report a decrease in August.
"With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase," Blitzer adds. "Presumably, the Fed will raise interest rates - the question is whether it will be now, late this year, or sometime in the first half of 2016.
"Little initial impact is expected on consumer use of credit or on default rates," Blitzer says. "A quarter-point increase in the Fed funds rate will not affect fixed-rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable-rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.
read more: http://www.journalnow.com/business/business_news/local/underwater-residential-mortgages-in-winston-salem-msa-decline-in-q/article_05abf63c-e4a1-569f-b978-94dc8ee7bf08.html
Meanwhile, the default rate for auto loans increased four basis points to reach 0.90%, and the default rate for credit cards saw a slight decrease to reach 2.71%, down eight basis points from the previous month, according to the index.
The composite rate in August was 0.96%, up four basis points from July.
The report notes that despite weak wage growth, consumer credit default rates are currently close to pre-financial crisis levels.
"Two economic areas showing strength are auto sales and housing," says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. "Car and light truck sales saw recent gains reaching an annual rate of about 17.5 million units as sales of new homes and housing starts picked up."
Blitzer adds that the growth in credit is "largely due to loosening of credit standards, indicating banks are willing to bear increased risk by approving more subprime consumers." He warns, however, that looser credit could result in higher default rates in the months to come.
Four of the five major cities saw their default rates increase in August, according to the report. New York saw the largest increase, reporting 1.04%, up 12 basis points from July. Dallas saw its default rate increase by seven basis points to 0.71%. Chicago reported its third consecutive increase with a 1.21% rate, up six basis points from the previous month. Miami reported a default rate of 1.46%, up one basis point for the month.
Los Angeles was down 13 basis points to 0.76% - the only city to report a decrease in August.
"With the Federal Reserve policy meeting on Wednesday and Thursday this week, analysts are debating the possible impact of an interest rate increase," Blitzer adds. "Presumably, the Fed will raise interest rates - the question is whether it will be now, late this year, or sometime in the first half of 2016.
"Little initial impact is expected on consumer use of credit or on default rates," Blitzer says. "A quarter-point increase in the Fed funds rate will not affect fixed-rate mortgage loans or auto financing. Some small increases in interest rates on bank cards and similar lending may occur in the months following Fed action. Adjustable-rate mortgages tied to market rates will rise as mortgage loans reach dates when rates reset.
read more: http://www.journalnow.com/business/business_news/local/underwater-residential-mortgages-in-winston-salem-msa-decline-in-q/article_05abf63c-e4a1-569f-b978-94dc8ee7bf08.html
Thursday, September 3, 2015
Refi Apps Account for Nearly 60 Percent of All Mortgage Activity
Mortgage applications increased 11.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 28, 2015. The refinance share of activity increased to 58.7 percent of total applications from 55.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.5 percent of total applications.
The Market Composite Index, a measure of mortgage loan application volume, increased 11.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10 percent compared with the previous week. The Refinance Index increased 17 percent from the previous week to its highest level since April 2015. The seasonally adjusted Purchase Index increased four percent from one week earlier to its highest level since July 2015. The unadjusted Purchase Index increased two percent compared with the previous week and was 25 percent higher than the same week one year ago.
“Although mortgage rates were unchanged for the week, Treasury rates were down sharply early in the week due to the global stock market rout and this led to a significant increase in application volume,” said Mike Fratantoni, MBA’s chief economist.
The FHA share of total applications decreased to 12.7 percent from 13.1 percent the week prior. The VA share of total applications decreased to 9.8 percent from 11.4 percent the week prior. The USDA share of total applications decreased to 0.7 percent from 0.8 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.08 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.05 percent from 4.00 percent, with points increasing to 0.28 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87 percent from 3.90 percent, with points increasing to 0.32 from 0.21 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.30 percent from 3.33 percent, with points decreasing to 0.26 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
see more at: http://nationalmortgageprofessional.com/news/55586/refi-apps-account-nearly-60-percent-all-mortgage-activity
The Market Composite Index, a measure of mortgage loan application volume, increased 11.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 10 percent compared with the previous week. The Refinance Index increased 17 percent from the previous week to its highest level since April 2015. The seasonally adjusted Purchase Index increased four percent from one week earlier to its highest level since July 2015. The unadjusted Purchase Index increased two percent compared with the previous week and was 25 percent higher than the same week one year ago.
“Although mortgage rates were unchanged for the week, Treasury rates were down sharply early in the week due to the global stock market rout and this led to a significant increase in application volume,” said Mike Fratantoni, MBA’s chief economist.
The FHA share of total applications decreased to 12.7 percent from 13.1 percent the week prior. The VA share of total applications decreased to 9.8 percent from 11.4 percent the week prior. The USDA share of total applications decreased to 0.7 percent from 0.8 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.08 percent, with points increasing to 0.37 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.05 percent from 4.00 percent, with points increasing to 0.28 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.87 percent from 3.90 percent, with points increasing to 0.32 from 0.21 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.30 percent from 3.33 percent, with points decreasing to 0.26 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
see more at: http://nationalmortgageprofessional.com/news/55586/refi-apps-account-nearly-60-percent-all-mortgage-activity
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